Guy
Tremblay
[TRANSLATION]:—This
case
was
heard
in
Montreal,
Quebec
on
June
7,
1977.
1.
General
point
at
issue
The
Board
must
decide
whether
the
amounts
paid
by
the
appellant
to
his
wife
in
1972,
1973
and
1974,
when
they
were
business
partners,
should
be
included
in
computing
his
income.
So
far
as
1972
is
concerned
the
appellant
did
not
file
a
notice
of
objection
before
appealing
to
the
Board.
2.
Burden
of
proof
The
burden
is
on
the
appellant
to
show
that
the
respondent’s
assessments
are
incorrect.
This
burden
of
proof
derives
not
from
one
particular
section
of
the
Income
Tax
Act,
but
from
a
number
of
judicial
decisions,
including
the
judgment
delivered
by
the
Supreme
Court
of
Canada
in
R
W
S
Johnston
v
MNR,
[1948]
CTC
195;
3
DTC
1182.
3.
Facts
3.1
The
appellant
was
engaged
to
his
wife
in
1965
when
they
opened
a
lingerie
shop
for
women
called
La
Boutique
Violene
Enrg.
3.2
The
appellant
invested
$3,000
at
that
time
and
his
wife
$500.
According
to
the
appellant
and
his
wife,
they
made
a
verbal
agreement
at
that
time
to
divide
the
profits
equally.
3.3
In
June
1966
the
appellant
and
his
fiancée,
in
order
to
satisfy
her
father,
concluded
a
contract
giving
her
100%
of
the
profits.
This
contract
was
entered
as
Exhibit
A-2.
In
point
of
fact,
the
signing
parties
always
believed
this
document
to
be
valueless
and
always
disregarded
it.
3.4
As
indicated
in
Exhibit
I-3,
the
partnership
declaration
dated
October
7,
1965
nevertheless
only
mentions
the
appellant
as
the
owner
of
the
business:
“I
am
the
only
person
involved
in
the
business.”
3.5
On
a
bank
form
dated
January
10,
1966
the
appellant,
declaring
himself
to
be
doing
business
as
La
Boutique
Violene
Enrg,
gave
his
wife
general
authorization
to
make
deposits
and
withdrawals
from
the
bank
account,
and
so
on,
for
the
business.
3.6
In
December
1965
the
appellant
and
his
brother,
Costas
Marinis,
signed
a
lease
(Exhibit
A-1)
in
respect
of
the
premises
of
the
business,
on
which
the
name
of
Violene
Angers
does
not
appear.
The
lease
renewal
documents
were
sent
to
the
appellant.
3.7
The
appellant’s
wife
always
devoted
all
her
time
to
the
business,
both
before
and
after
the
marriage
took
place
on
July
30,
1966.
Mr
and
Mrs
Marinis
were
married
under
the
regime
of
separation
as
to
property
(Exhibit
I-4).
3.8
In
so
far
as
the
appellant
himself
is
concerned,
he
has
been
employed
full
time
by
Poly
Plastic
Inc
since
1969.
Nevertheless,
it
is
he
who
kept
the
books
for
La
Boutique
Violene
Enrg.
3.9
All
income
was
always
deposited
in
the
account
of
La
Boutique
Violene
Enrg,
where
the
profits
remained.
The
$3,000
and
$500
initially
invested
by
the
appellant
and
his
wife
respectively
were
never
paid
back
to
them.
3.10
According
to
the
wife,
she
never
received
a
wage,
apart
from
fifteen
dollars
per
week
before
she
married.
She
and
her
husband
worked
to
build
something
together.
3.11
In
1975
the
business
was
incorporated
and
each
owned
50%
of
the
shares.
3.12
The
insurance
policy
for
1971
to
1974
(Exhibit
I-1)
is.
made
out
to
the
following
policyholder:
“La
Boutique
Violene
Enrg
(George
Marinis,
Prop).”
3.13
A
loan
for
the
business
was
taken
out
in
the
name
of
George
Marinis
in
1974
(Exhibit
1-5).
3.14
As
the
result
of
a
robbery,
the
business
received
$9,000
from
theft
insurance.
This
money
was
used
toward
buying
a
home
registered
in
the
name
of
the
appellant’s
wife.
3.15
The
appellant’s
wife
never
filed
an
income
tax
return.
According
to
their
accountant,
all
the
profits
had
to
be
taxed
in
the
hands
of
the
appellant.
A
certain
amount
was
nevertheless
deducted
as
the
wage
of
the
appellant’s
wife
in
computing
the
net
income
of
the
business.
The
net
profit
was
included
in
computing
the
appellant’s,
but
not
his
wife’s
income.
The
respondent,
through
reassessments,
added
the
amount’of
the
indicated
wage
of
the
appellant’s
wife
to
his
income.
3.16
Although
the
appellant
failed
to
file
a
notice
of
objection
in
respect
of
1972,
he
acted
in
accordance
with
the
Act
in
respect
of
1973
and
1974.
3.17
The
notifications
from
the
Minister
in
respect
of
1973
and
1974
upheld
the
inclusion
of
the
amounts
indicated
as
his
wife’s
wage
in
computing
the
appellant’s
income.
3.18
On
May
21,
1976
the
appellant
filed
an
appeal
in
respect
of
1972,
1973
and
1974.
3.19
At
the
start
of
the
hearing
counsel
for
the
respondent
filed
a
motion
to
dismiss
the
appeal
in
respect
of
1972,
on
the
grounds
that,
since
the
appellant
had
not
filed
a
notice
of
objection
within
the
prescribed
deadlines,
the
Board
did
not
have
any
jurisdiction
to
hear
this
appeal.
4.
Specific
points
at
issue
Does
the
Board
have
jurisdiction
to
hear
the
appeal
lodged
in
respect
of
1972?
Was
La
Boutique
Violene
Enrg
operated
by
the
appellant
alone
or
by
the
appellant
in
partnership
with
his
wife?
If
this
is
a
partnership,
is
the
“discretion
of
the
Minister’’
mentioned
in
subsection
74(5)
of
the
new
Act
and
in
Regulation
900
absolute?
If
there
is
no
partnership,
must
subsection
74(3)
be
applied?
5.
Act,
case
law
and
comments
5.1
Motion
to
dismiss
the
appeal
in
respect
of
1972
Was
the
appellant
entitled
to
appeal
even
though
he
had
not
filed
a
notice
of
objection
in
respect
of
1972?
Does
the
Board
have
jurisdiction
to
hear
this
appeal?
Counsel
for
the
respondent
cited
the
following
case
law
to
support
his
argument
that
it
does
not:
Douglas
Richard
Wilson
v
MNP,
11
Tax
ABC
331
;
54
DTC
474;
Georges
Pinard
v
MNP,
16
Tax
ABC
68;
56
DTC
504;
Joseph
Cioch
v
MNP,
40
Tax
ABC
36;
66
DTC
18;
Donald
M
White
v
MNR,
40
Tax
ABC
83;
66
DTC
50;
Leonard
G
Hough
v
MNP,
41
Tax
ABC
168;
66
DTC
401;
Sam
Lazis
v
MNP,
[19701
Tax
ABC
605;
70
DTC
1400;
Arnold
Guetta
v
MNP,
[1971]
Tax
ABC
77;
71
DTC
45.
The
beginning
of
section
169
of
the
new
Aci,
which
is
concerned
with
appeals
to
the
Tax
Review
Board,
reads:
169.
Appeal
Where
a
taxpayer
has
served
notice
of
objection
to
an
assessment
under
section
165,
he
may
appeal
to
the
Tax
Review
Board
to
have
the
assessment
vacated
or
varied
after
either
(a)
the
Minister
has
confirmed
the
assessment
or
reassessed,
or
(b)
180
days
have
elapsed
after
service
of
the
notice
of
objection
and
the
Minister
has
not
notified
the
taxpayer
that
he
has
vacated
or
confirmed
the
assessment
or
reassessed;
but
no
appeal
under
this
section
may
be
instituted
after
the
expiration
of
90
days
from
the
day
notice
has
been
mailed
to
the
taxpayer
under
section
165
that
the
Minister
has
confirmed
the
assessment
or
reassessed.
The
text
is
clear.
The
legislator
made
the
notice
of
objection
a
condition
sine
qua
non
for
allowing
an
appeal
to
the
Board.
The
Board
therefore
does
not
have
jurisdiction
to
hear
the
appeal
in
respect
of
1972
and
dismisses
it.
5.2
Is
there
a
partnership?
5.2.1
Argument
of
the
appellant
The
appeilant,
who
maintains
that
a
partnership
does
not
exist,
cited
paragraph
4
of
Interpretation
Bulletin
IT-231,
issued
by
the
Department
of
National
Revenue
on
June
30,
1975
concerning
subsection
74(5)
of
the
new
Act.
Subsection
74(5)
and
paragraph
4
of
IT-231
state:
74.
(5)
Where
husband
and
wife
partners
in
business.
Where
a
husband
and
wife
were
partners
in
a
business,
the
income
of
one
spouse
from
the
business
for
a
taxation
year
may,
in
the
discretion
of
the
Minister,
be
deemed
to
belong
to
the
other
spouse.
IT-231,
para
4:
In
determining
whether
or
not
either
spouse
is
actively
engaged
in
the
business
of
the
partnership,
consideration
is
given
to
the
amount
of
services
rendered
and
any
special
expertise
that
such
spouse
contributes.
According
to
the
appellant,
the
evidence
showed
that
his
wife
worked
full
time
in
the
business
for
the
years
in
question;
without
actually
receiving
any
remuneration.
Even
though
the
appellant
invested
$3,000
and
his
wife
only
$500,
are
not
the
services
she
rendered
a
guarantee
of
her
contribution
to
the
partnership?
As
she
herself
said,
“We
wanted
to
build
something
together.”
5.2.2
Arguments
of
the
respondent
Counsel
for
the
respondent,
for
his
part,
maintains
that
since
partnership
is
not
defined
in
the
Income
Tax
Act,
the
principles
governing
the
setting
up
of
a
partnership
are
the
civil
laws
of
the
province
in
which
the
partnership
is
alleged
to
exist:
In
the
case
of
Quebec,
these
are
Articles
1830
to
1838
of
the
Civil
Code.
With
respect
to
the
declaration
of
firm
name
submitted
as
Exhibit
I-3,
counsel
for
the
respondent
cited
Articles
1834
and
1835
of
the
Civil
Code:
1834.
In
partnerships
for
trading,
manufacturing
or
mechanical
purposes,
or
for
the
construction
of
roads,
dams
and
bridges,
or
for
the
purpose
of
colonization,
or
of
settlement,
or
of
land
traffic,
the
partnership
must
deliver
to
the
prothonotary
of
the
Superior
Court
in
each
district,
in
which
they
carry
on
business,
a
declaration
in
writing,
in
the
form
and
subject
to
the
rules
provided
in
the
statute
intituled:
Partnership
Declaration
Act.
The
omission
to
deliver
such
declaration
does
not
render
the
partnership
null;
it
subjects
the
contravening
parties
to
the
penalties
imposed
by
the
Statute.
1834a.
A
similar
declaration
must
be
also
made
by
any
person
carrying
on
business
alone
under
a
firm
name.
1835.
The
allegations
contained
in
the
declaration
mentioned
in
the
last
preceding
article
cannot
be
controverted
by
any
person
who
has
signed
the
same,
nor
can
they
be
controverted,
as
against
any
party
not
being
a
partner,
by
a
person
who
has
not
signed
but
was
really
a
member
of
the
partnership
at
the
time
the
declaration
was
made;
and
no
partner,
whether
he
has
signed
or
not,
is
deemed
to
have
ceased
to
be
a
partner
until
a
new
declaration
has
been
made
and
filed
aforesaid,
stating
the
alteration
in
the
partnership.
Counsel
argued
that
the
appellant
cannot
therefore
contradict
the
declaration
(Exhibit
1-3)
made
on
October
7,
1965.
The
article
was
written
to
protect
third
parties
and
respondent,
being
a
third
party,
is
entitled
to
rely
unconditionally
on
this
document
in
determining
whether
there
was
a
partnership
and
tax
the
appellant
accordingly.
Counsel
for
the
respondent
cited
the
following
cases:
Dame
Moreau
v
Litvack,
[1959]
R
J
1360:
No
138
v
MNR,
9
Tax
ABC
419;
54
DTC
42:
Phillip
Prunell
v
MNR,
20
Tax
ABC
163;
58
DTC
545;
MNR
v
Samuel
L
Shields,
[1962]
CTC
548;
62
DTC
1343;
MNR
v
Robert
P
Ouellette
and
John
E
Brett,
[1971]
CTC
121;
71
DTC
5094;
Fred
Spady
v
MNR,
5
Tax
ABC
123;
51
DTC
385.
5.2.3
Legal
Theory
and
comments
Hervé
Rock
and
Rodolphe
Paré
comment
on
Article
1835
as
follows
in
their
book
Traité
de
droit
civil
du
Québec,
vol
3,
360-361
:
The
effect
of
our
article
is
that
once
the
partnership
declaration
is
registered
it
cannot
be
challenged
by
those
who
have
signed
it.
It
is
a
generally
recognized
rule
that
one
who
signs
a
document
does
not
have
the
right
to
question
the
facts
to
which
he
has
attested
by
his
signature.
However,
this
applies
only
as
against
third
parties;
in
so
far
as
they
are
concerned,
the
declaration
must
be
taken
as
true.
As
for
those
who
signed
the
declaration
themselves,
they
can
prove
that.
the
declaration
does
not
speak,
the
truth
if,
in
actual
fact,
there
is
no
partnership
between
them.
In
the
case
at
bar,
it
may
be
said
that
this
is
not
a
partnership
declaration,
but
a
declaration
of
firm
name,
provided
for
in
Article
1834a
of
the
Civil
Code.
This
declaration
was
also
designed,
however,
to
inform
third
parties
and
to
bind
the
.signing
party
where
they
are
concerned.
The
spirit
of
these
articles
tends
to
indicate
that
third
parties
means
the
creditors
of
the
partnership
or
business.
Article
1836
of
the
Civil
Code
reads:
Article
1836.
Any
partner,
although
not
mentioned
in
the
declaration,
may
be
sued
jointly
and
severally
with
the
partners
mentioned
therein,
or
the
latter
may
be
sued
alone
and,
if
judgment
be
recovered
against
them,
any
other
partner
or
partners
may
be
sued
on
the
original
cause
of
action
on
which
such
judgment
was
rendered.
The
purpose
of
a
document
such
as
a
declaration
of
firm
name
is
to
inform
third
parties
and
to
make
the
person
who
signs
it
financially
liable
in
order
to
protect
the.
creditor.
Further,
according
to.
Article
1836
of
the
Civil
Code,
the
latter
can
sue
others
who
have
not
signed
and
who
may,
in
fact,
be
members
of
the
partnership.
On
these
grounds,
the
Board
believes
that
the
respondent
is
entitled
to
sue
the
signing
party
and
those
who
may,
in
fact,
be
members
of
the
partnership
actually
operating
the
business,
La
Boutique
Violene
Enrg,
even
if
the
declaration
had
not
been
mentioned.
Thus,
for
example,
if
a
business
owed
the
respondent
a
debt
for
source
deductions,
the
Department
of
National
Revenue
would
be
entitled,
under
Article
1836
of
the
Civil
Code
(independent
of
any
section
applicable
under
the
Income
Tax
Act)
to
sue
the
party
signing
the
declaration
of
firm
name
of
a
business,
as
well
as
other
persons
of
whom
it
could
be
proven
thai
they
did
indeed
form
a
partnership
operating
the
business
that
originated
the
debt.
However,
should
we
not
regard
the
Department
of
National
Revenue
from
another
point
of
view,
when
the
latter
intervenes
to
divide
income
which
will
give
rise
to
debts,
namely,
the
tax
calculated
on
the
income
earned
by
the
various
persons
in
fact
operating
the
business.
The
Department
of
National
Revenue
first
seeks
to
determine
whether
a
partnership
exists
before
it
can
divide
the
income,
establish
the
amount
of
tax
owing
and
then
become
the.
sole
creditor.
It
becomes
a
creditor
not
of
the
partnership
but
of
the
partners
individually,
and
this
debt
is
not
joint
and
several.
From
this
viewpoint,
the
Board
is
of
the
opinion
that,
in
the
case
at
bar,
the
respondent
cannot
be
considered
to
be
a
creditor
of
the
partnership.
He
is
the
creditor
of
each
partner
for
the
personal
tax
owed
by
each,
on
the
condition,
of
course,
that
a
partnership
exists.
The
Board
further
concludes
that
it
must
consider
the
evidence—
other
than
merely
the
declaration
of
firm
name—in
order
to
determine
whether
there
is
a
partnership
between
the
appellant
and
his
wife.
First,
the
appellant
and
his
wife
state
that
they
had
agreed
between
them
to
share
the
profits
equally
when
they
started
the
business
in
1965.
This
agreement
was
a
verbal
one.
The
only
proof
that
such
an
agreement
existed
is
the
oaths
made
by
the
appellant
and
his
wife.
What
is
the
written
evidence—other
than
the
declaration
of
the
existence
of
the
business—which
on
its
very
face
seems
to
deny
the
existence
of
a
partnership?
(a)
The
contract
of
June
14,
1966,
wherein
Violene
Angers
is
said
to
be
the
full
owner
of
the
business.
The
appellant
and
his
wife,
however,
deny
the
value
of
this
document
(paragraph
3.3).
(b)
The
banking
authorization
of
January
10,
1966
(paragraph
3.5).
(c)
The
lease
concluded
in
December
1965
(paragraph
3.6).
(d)
The
contract
of
insurance
for
March
1971
to
March
1974
(paragraph
3.10).
(e)
The
appellant’s
tax
returns
never
mentioned
the
existence
of
a
partnership
contract.
The
statement
that
the
accountant
had
misled
them
is
doubtful;
stronger
proof
should
have
been
submitted.
(f)
Finally,
even
if
the
Board
does
not
feel
it
is
irrevocably
bound
by
the
declaration
of
firm
name
made
in
October
1965,
this
document
nevertheless
has
an
intrinsic
and
not
insignificant
probative
value.
Can
the
appellant,
upon
whom
the
burden
of
proof
rests,
say
in
light
of
all
this
written
proof
that
his
and
his
wife’s
testimony
in
respect
of
the
verbal
agreement
about
the
partnership
contract
alone
reversed
this
burden?
The
Board
does
not
believe
so.
Additionally,
does
the
fact
that
the
business
was
incorporated
in
1975
and
that
the
appellant
and
his
wife
divided
the
shares
between
them
equally
necessarily
imply
that
a
partnership
existed
previously?
The
Board
does
not
believe
so.
Does
the
fact
that
all
the
income
earned
was
left
in
the
business’
bank
account
not
imply,
as
the
wife
stated,
that
they
wanted
to
build
up
a
business
together?
The
Board
believes
that
it
does.
However,
does
that
constitute
proof
that
a
partnership
contract
existed?
In
the
Board’s
view
it
does
not.
Mr
Fisher,
a
Board
member,
gave
an
identical
ruling
in
No
138
v
MNR,
cited
earlier.
Since
the
appellant
did
not
submit
sufficiently
strong
proof,
the
Board
must
conclude
legally
that
the
partnership
alleged
by
the
appellant
and
his
wife
is
nonexistent,
the
appellant
being
the
sole
owner
of
the
business
La
Boutique
Violene
Enrg
during
1973
and
1974.
5.2.4
Discretion
of
the
Minister
In
view
of
the
fact
that
the
partnership
is
nonexistent,
subsection
74(5)
of
the
new
Act
cannot
be
applied
and
the
Board
need
not
rule
on
the
pertinence
of
the
discretion
that
could
have
been
exercised
by
the
Minister.
5.3
Remuneration
of
the
spouse
The
question
arises
whether
subsection
74(3)
of
the
new
Act
should
apply:
74.
(3)
Where
a
person
has
received
remuneration
as
an
employee
of
his
spouse,
the
amount
thereof
shall
not
be
deducted
in
computing
the
spouse’s
income
and
shall
not
be
included
in
computing
the
employee’s
income.
The
Board
has
no
choice
but
to
rule
that
this
section
cannot
apply
in
the
case
at
bar.
According
to
the
evidence
however,
the
money
in
fact
always
remained
in
the
bank
account
of
the
business,
and
hence
the
appellant’s
wife
did
not
draw
a
wage.
Needless
to
say,
that
is
all
the
more
reason
why
no
deduction
can
be
allowed
and
all
the
net
income
from
the
business
must
be
included
in
computing
the
appellant’s
income.
6.
Conclusion
The
appeal
is
dismissed
in
accordance
with
the
above
reasons
for
judgment.
Appeal
dismissed.
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